Daily Alert – Thursday 21st April 2022: US TIPS masks real risk sentiment

Mark NugentApril 2022, Daily Alert

Daily Alert – Thursday 21st April 2022: US TIPS masks real risk sentiment

Good morning.

Yesterday’s risk sentiment was indecisive as per our little calculator. However, the US 10-Year yield pointed to risk-off. What’s going on? Well, as always, there are multiple things (called correlates) that move instruments and some of them have nothing to do with sentiment. The US 10-Year yield fell because another instrument, the US TIPS (Treasury Inflation Protected Security) yield rose to zero percent. This is a bond that is designed to return breakeven performance over 10 years relative to inflation forecasts. The yield had been negative, meaning to invest in it would likely ensure a loss, but when the yield rose to breakeven, it became more attractive as an alternative to the usual 10-Year bond, so the latter sold off and dragged the USD down with it. These factors confused our sentiment calculator. It is important to understand the limitations of any mechanistic tool and to look behind the simple output they give. So now you know.

There was little else going on in the markets. Macron and Le Pen had their debate. There was no melt-down from Le Pen like last time, but she failed to land any real blows on Macron and the polls now say he is comfortably ahead. This has calmed the markets, particularly around the Euro50 and the single currency itself.

My Japan225 and AUDJPY are both in the money. I will spend the rest of the week managing these two trades.

Have a great weekend when it comes. We’ll be back on Monday.

VIP Club members can see today’s video, all brief trading videos, the Monthly and YTD Performance videos, the Trading Video Course and download the MTM Indicators software HERE